Halliburton Company (HAL)

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Halliburton (HAL)

Q1 2013 Results Earnings Call

April 22, 2013 9:00 a.m. ET

Executives

David Lesar - Executive Chairman, CEO and President

Mark McCollum - EVP and CFO

Timothy Probert - President of Strategy and Corporate Development

Jeff Miller - EVP and COO

Kelly Youngblood - Senior Director of IR

Analysts

James West - Barclays Capital

Waqar Syed - Goldman Sachs

Jeff Tillery - Tudor, Pickering, Holt & Co.

Angie Sedita - UBS

Bill Herbert - Simmons & Co.

Kurt Hallead - RBC

Jim Wicklund - Credit Suisse

Scott Gruber - Sanford Bernstein

David Anderson - JPMorgan

Brad Handler - Jefferies

Jim Crandell - Cowen Securities

Doug Becker - Bank of America Merrill Lynch

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Halliburton first quarter 2013 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions.] As a reminder, this conference may be recorded.

I’d now like to introduce your host for today's conference, Kelly Youngblood. Sir, you may begin.

Kelly Youngblood

Thanks, operator. Good morning, and welcome to the Halliburton first quarter 2013 conference call. Today's call is being webcast and a replay will be available on Halliburton's website for seven days. The press release announcing the first quarter results is available on Halliburton website.

Joining me today are Dave Lesar, CEO; Jeff Miller, COO; and Mark McCollum, CFO. Tim Probert, president of strategy and corporate development will also be available today for follow-up calls.

I would like to remind our audience that some of today's comments may include forward-looking statements, reflecting Halliburton's views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2012 and recent current reports on Form 8-K.

Our comments include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures are included in the press release announcing the fourth quarter results, which, as I have mentioned, can be found on our website. In our discussion today, we will be excluding the impact of these items on our financial results unless otherwise noted.

We welcome questions after we complete our prepared remarks. We ask that you please limit yourself to one question and one related follow-up to allow more time for others who have questions.

Now, I'll turn the call over to Dave. Dave?

David Lesar

Thank you, Kelly, and good morning to everyone. Let me begin by saying that our results for the first quarter played out pretty much as we said it would on our last call. Our international operations were impacted by the normal seasonal drop off in the first quarter, but revenues and operating income expanded significantly compared to the prior year as we outgrew our primary competitors.

Sequentially, our North America margins improved substantially as we worked through the guar issue and got our equipment back to work as customers refreshed their budgets. Total company revenue of $7 billion was a record for a Halliburton first quarter, and operating income was $902 million. Our Sperry Drilling, Mult-Chem, and Baroid product lines achieved record revenues this quarter and from an operating income perspective, Baroid and drill bits also set new records.

I’m very pleased with our results in North America, where we saw nearly a 400 basis point sequential improvement to our margins as we work through our remaining high-priced guar inventory, saw activity levels rebound from the dramatic drop off seen at the end of the fourth quarter, and began to see cost savings materialize from our Battle Red and Frac of the Future initiatives.

The U.S. land rig count averaged 3% lower in the first quarter versus the prior quarter. However, despite reduced overall rig activity, horizontal rigs were up sequentially, and we expect this trend to continue, especially in areas like the Permian Basin. Coupled with the increased adoption of pad drilling and 24-hour operations, we expect to see even higher service intensity.

We believe that the oil directed rig count will grow moderately from current levels as our customers continue to evaluate the pace which they can more efficiently drill in complete wells. We believe this continued shift towards efficiency will bode well for us in the coming years, as no other company has the ability to execute factory type operations as efficiently as Halliburton.

Recently, we have seen an uptick in natural gas prices. However, our outlook for gas activity this year has not materially changed. We believe we will need to see sustained pricing improvements before gas activity will meaningfully increase. With the exception of the Marcellus, where we are already very active, our view is that natural gas drilling will not be a major activity driver in 2013 in the U.S.

The availability of associated gas and shut in gas to meet market demand will likely delay a meaningful uptick in new well drilling. If we see improvement in the gas basins, it will be late in the year, although we are becoming increasingly optimistic about gas activity in 2014.

That all being said, let me remind you that we called the fourth quarter as the bottom for North America margins, and our first quarter results bear that out. Even with the spring breakup in Canada, we continue to expect North America margins will expand over the balance of 2013, subject to the usual year-end seasonality.

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